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De-escalation of the Middle East tensions and encouraging news from the trade front improve risk taking across global financial markets, leading gold and oil lower and boosting appetite for major currencies. The US dollar remains under pressure however on looming US debt worries while the Swiss franc remains in demand despite optimism globally.

This week, investors will focus on European inflation figures, Trump’s tax bill—aimed to pass before the July 4th holiday, the latest US jobs report and a series of final PMI prints. In energy markets, oil prices are worth watching as they give back the Middle East–led gains. WTI crude is sitting on a key Fibonacci support near $65 per barrel—the level that separates the year-to-date bearish trend from a potential medium-term bullish consolidation. Expectations that OPEC may announce a plan to bring more oil to market at its July 6 meeting could give bears the upper hand into the weekend.

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The month of June is approaching its end with US equities having rebounded to their all-time high levels, fully brushing off the trade-war-led selloff between February and April this year.

The rally looks stretched considering the US debt risks, high valuations, trade uncertainties and hardly funded dovish Federal Reserve (Fed) bets. But stretched doesn’t mean it won’t continue. If investors are fed a steady diet of sugar, asset prices could keep inflating. And Trump may eventually give them what they want. The US and China have apparently reached a trade truce, the US administration said that 10 more deals could be imminent, and EU Commission President Ursula von der Leyen said she’s ready to negotiate when the US is — in an effort to reach an agreement before the July deadline. Meanwhile, US bank investors are cheering news of softer regulation on leverage rules this week, which could free up to $6 trillion in additional balance sheet capacity.

As such, futures are in the green and the US dollar rebounds from 3-year lows.

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Trump denied earlier intelligence reports suggesting that the US strikes on Iranian nuclear sites caused only limited damage. On the contrary, he claimed the operation was a historic success and even declared the war over — ‘except that it could maybe restart soon.’ Still, the US and Iran are scheduled to meet for diplomatic talks in Iran this weekend, which appears to be a signal that Trump genuinely wants to de-escalate tensions in the Middle East.

Oil is lower, US dollar is lower as well despite Powell’s reluctance to cut rates amid tariff uncertainties. But Powell could be bypassed by a premature appointment of next Fed Chair, without however a guarantee that the markets will absorb unjustified rate cuts.

In all cases, the dollar continues to weaken, weaker dollar supports S&P500 revenue expectations but the S&P500 earnings should grow way faster than the dollar’s depreciation says Bloomberg Intelligence to be considered trading at ‘fair value’.

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Tensions in the Middle East are deescalating and energy prices ease.

Easing stress in energy markets is excellent news for everyone who doesn’t want to see higher oil prices translating into accelerating inflation and tighter monetary policy. The combination of Middle East de-escalation and rising dovish Federal Reserve (Fed) expectations sent the S&P 500 more than 1% higher—almost near a record high—while the Nasdaq printed a fresh closing high. The US dollar fell. But trade, debt and geopolitical risks loom and market mood feels overly optimistic when risks are taken in the consideration.

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Middle East tensions suddenly waned after Iran fired missiles at a US air base in Qatar — having reportedly informed the US in advance. As a result, the missiles were intercepted. President Trump called Iran’s move ‘weak’ and announced a few hours ago that Israel and Iran had reached a ceasefire agreement. Crude tumbled, gold and US dollar eased, and risk taking is improved.

Gains in US indices are also supported by rising dovish Federal Reserve (Fed) bets, while European indices remain under the pressure of trade uncertainties into the July 9th deadline.

Today, Fed Chair Jerome Powell may temper dovish expectations during his semi-annual testimony, which begins today and continues tomorrow. He’s likely to maintain a cautious tone, emphasizing that inflation remains too high to justify a rate cut before the fall — especially amid ongoing geopolitical and trade uncertainty. Could he throw cold water on US equity optimism? Time will tell!

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The week kicked off with a jump in oil prices as the US got involved in Middle East tensions, bombing Iranian nuclear facilities with what they call ‘bunker busters’, oil prices jumped at the open, but gains have been given back since then, haven assets don’t show a particular sign of stress... Monday markets look like business as usual.

Risks however are looming, and headlines could – maybe – wake up the pessimists?!

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The worsening global geopolitical weather keeps investors in a cautious mode, and will likely prevent them from taking too much risk before the weekend. While the news that the US is giving itself two weeks to decide whether to intervene in Iran – which is slightly better than earlier reports suggesting they would go in this weekend – has somehow eased tensions, looming uncertainties pushed US and European equities lower yesterday. I’m not sure the US buying itself time can be interpreted as a sign of de-escalation.

Energy, defense and haven stocks remain in demand, while investors will certainly refrain from taking too much risk on their shoulders.

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‘Someone has to pay,’ said Federal Reserve (Fed) Chair Jerome Powell at yesterday’s post-decision presser, after the Fed kept rates unchanged as widely expected – and priced in – by global markets. Stocks fell despite lower yields.

The US dollar was in doji mode yesterday but is stronger this morning, perhaps supported by a relatively cautious Fed tone and some flight to safety. There are rumours the US could become directly involved in Middle East tensions as soon as this weekend. That alone could attract defensive flows into the dollar ahead of a potentially critical weekend – regardless of Fed policy.

There’s also little reason to pile into risk assets amid such elevated geopolitical risk. If tensions escalate, there’s arguably no better shelter than oil, gold, the US dollar, and the Swiss franc.

Today, it’s Bank of England’s (BoE) turn to announce no change, while the Swiss just cut its policy rate to 0%.

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US stocks sold off, oil and natural gas rallied, and the US dollar gained as US Treasuries and gold attracted safe-haven flows. Mounting tensions between Israel and Iran, alongside Donald Trump’s early departure from the G7 meeting, spurred concerns that the US could become involved in the Middle East crisis.

Investors are taking risk off the table, bracing for further escalation and a potential prolongation of tensions with Iran.

All this sets the stage for the Federal Reserve’s (Fed) latest policy decision and the release of its updated dot plot later today. The Fed is not expected to change rates at this meeting. The base case remains two rate cuts this year, with the first likely not before September, according to Fed funds futures pricing. While the economic projections and dot plot could shift market expectations, rising geopolitical and trade uncertainties mean the Fed’s growth and inflation forecasts may lack precision, and should be taken with a grain of salt.

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